Buyout Could Force Change On Competitors

Buyout Could Force Change On Competitors

It may be that Chase Manhattan Corp.'s border crossing will radically change Connecticut's banking landscape -- or it may not quite measure up to that.

But it is certain that Chase's expected entry into Connecticut today -- finally flinging open the doors of national interstate banking -- will be akin to a gorilla entering the sitting room.

Chase, with assets of nearly $100 billion, will dwarf even the $48 billion Fleet/Norstar Financial Group, far and away New England's biggest banking company after gobbling up Bank of New England Corp.'s three failed banks.

The effect of Chase's purchase of Citytrust and Mechanics and Farmers Savings Bank, however uncertain, will be felt.

Experts uniformly agree that Chase, as the nation's third-largest bank, will become a factor in the state's economy -- and, perhaps, a catalyst for competitors to change.

Government officials and business leaders said Thursday that Chase will provide credit to cash-starved businesses, particularly the small and mid-size companies Chase traditionally has served.

Analysts theorized that Chase's move into New England might push Shawmut National Corp. -- parent of Connecticut National Bank -- and Bank of Boston Corp. to consummate a much-rumored merger, the better to match up against the big heavyweight on the block.

Short of that, some experts said, Shawmut might accelerate its search for new capital, the better to compete. Others said Bank of Boston might seek some other auisition.

Both Shawmut and Bank of Boston were mum on those matters Thursday.

There were those who said Chase Manhattan's move might lure other large banks into Connecticut.

And still others speculated on the giant's competitive effect on People's Bank, a Fairfield County institution recently weakened, like so many others, by losses and bad loans.

But the key point may well be that, even in the midst of a recession, and even though Chase decided to enter the market only because the Federal Deposit Insurance Corp. was holding a clearance sale, the mere presence of Chase in Connecticut could cheer the

spirits of a state in need of good news.

"Pyschologically, it's very positive," said former banking commissioner Brian J. Woolf. "People will see that a bank of that magnitude wants to do business here."

And, said Nancy Bush, an analyst with Brown Brothers Harriman, it signals that the banking industry still understands that New England in general, and Connecticut in particular, will not be ill forever.

"Everyone is interested in the region," Bush said. "Every bank that looked at Bank of New England or other franchises here has said they think the region will be back. And over the long term, New England will be back, and be back quite forcefully."

In the short term, some experts expect Chase will consolidate its loan offices with the branches Citytrust and Mechanics and Farmers had sprinkled across the region.

That could mean layoffs and automated teller machines in place of people.

Also unsure are what areas of business Chase will seek out.

Lewis Mandell, a University of Connecticut finance professor who has worked as a consultant for Chase, said Chase may be less interested in investing in businesses in Connecticut immediately than in collecting deposits and making auto and home equity loans to consumers.

"I have no knowledge of their strategy," said David Carson, who as president of Bridgeport-based People's Bank may be the man most affected by it.

But Carson, characteristically confident even if analysts worry about People's health, was sanguine about Chase's move.

He was certain any new credit Chase provides to local businesses will help the economy, and therefore his bank.

Carson was less certain that Chase's entry into Fairfield County was anything more than a natural extension of the bank's New York franchise -- that no one could be certain Chase has designs on the entire state, let alone region.

He was confident his bank knows the market well enough to compete effectively -- "We're prepared to go head to head," he said -- and he noted, as did others, that Chase will not need to offer the high deposit rates that ailing Citytrust and Mechanics and Farmers had to in order to attract deposits, rates that pressured competitors such as People's to follow suit.

Analysts and government officials were equally inclined to look at the bright side. Where the conventional fear in years past was that national interstate banking would allow huge competitors to swallow New England's home-grown banks, the observers said Thursday that was hardly the issue.

"The New England banking market is very sick," said Gerard Cassidy, an analyst with Tucker Anthony in Portland, Maine. "To worry about who is going to come in and rescue the banks shouldn't be a big issue right now. I think what most people should be concerned about is that we need more capital to come into the industry."

Experts differed on how other banks might respond.

Woolf, the former banking commissioner, believed that Bank of Boston and Shawmut National, who still have not convinced all analysts that their financial woes have bottomed out, might be more

interested in a marriage now.

"No one really knows their true condition," he said. "The fact that a money center bank is coming in is going to encourage those consolidations."

But Bush said both banks might approach the problem differently -- Shawmut by raising private capital more quickly so it could restore its health to compete; Bank of Boston by looking for a different franchise to auire.

"This will spur them on to look at other things in the region and move quickly," she said. "These guys have to make up their minds."

In the end, if nothing else is certain, the sure thing is that this is not how the state's bankers and policymakers envisioned the coming of national interstate banking.